Statement by IMF Mission to Russia

Press Release No. 13/23
January 23, 2013

An International Monetary Fund (IMF) mission headed by Mr. Antonio Spilimbergo visited Moscow during January 16-23. The team met with Finance Minister Siluanov, Central Bank of Russia Governor Ignatiev, other senior officials, representatives of the business community, and academics. At the conclusion of the visit, Mr. Spilimbergo made the following statement today in Moscow:

“A moderate expansion of the Russian economy of 3.7 percent is projected for 2013. In 2012, the Russian economy experienced historically low unemployment with high capacity utilization, though growth slowed somewhat to 3.6 percent from 4.3 percent in 2011. The outlook is subject to downside risks, notably from international oil prices. Domestic risks include a negative impact from rapid retail credit growth. Inflation is expected to ease slightly to around six percent in 2013, and will remain above the medium-term target without further policy action.

“The macroeconomic policy framework is moving in the right direction. The authorities have strengthened their capacity and buffers to manage volatility and crises, and have adopted a new fiscal rule and a more flexible exchange rate policy. Further strengthening of the macroeconomic framework, as well as an acceleration of structural reforms, are needed to achieve higher, sustainable growth.

“Strict and transparent implementation of the new oil price-based fiscal rule will help smooth spending volatility and contain spending pressures. However, under the rule, the non-oil fiscal deficit will stay above the level that is consistent with replenishing fiscal buffers, facilitating balanced economic growth, and ensuring adequate saving of the income from the nation's exhaustible oil resources. The authorities should consider a gradual shift to a more conservative oil reference price rule. A tighter fiscal stance would also help contain inflationary pressure. Fiscal adjustment will need to be underpinned by reforms, including of the pension and health care systems. Securing sustainability of the pension system necessitates an increase in the effective pension age and contribution period.

“Monetary policy should stay on hold for now, but maintain a tightening bias. The Central Bank of Russia should stand ready to take further action to head off price pressures, especially if steps towards more fiscal adjustment are not undertaken. The mission supports the Central Bank of Russia's planned move to formal inflation targeting and to bring the headline inflation rate down to 4-5 percent by 2014. To this end, further increases in exchange rate flexibility and improvements in the monetary operations framework are critical.

“In the financial sector, further steps to promote sound financial intermediation are needed to help underpin investment, growth, and macroeconomic stability. Key shortcomings identified in the 2011 IMF assessment of Russia’s financial sector should be addressed. To strengthen the supervisory framework, the Central Bank of Russia should be granted adequate authority to effectively supervise bank holding companies and related entities, to address connected lending, and to use professional judgment in applying regulations to individual banks. In response to the emerging risk of overheating in retail lending, the Central Bank of Russia should stand ready to implement further prudential measures as needed, in addition to those recently announced.

“Structural reforms should be accelerated to boost sustainable economic growth. Russia’s recent WTO accession should strengthen the business climate by making it more rules-based and predictable, and should be seized upon to strengthen the momentum for domestic reforms. We broadly agree with the current plans to strengthen the investment climate, the government’s privatization agenda, and the recommendations in Russia’s Strategy 2020 report. Accelerated implementation of these plans is paramount.”